PepsiCo is insisting that its $14 billion merger with Quaker Oats will be approved.  PepsiCo still expects the FTC to give the merger the green light, despite leaked reports that the deal may be rejected. PepsiCo will need to convince the FTC that it will be held in check by competitors and won't abuse its power over the convenience store trade. This may involve selling its Allsport brand to a powerful rival such as Cadbury Schweppes.

It's been a long battle for Quaker Oats, and it may not be over yet. It began when Quaker rejected PepsiCo's initial bid for the company in November 2000.


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Coca-Cola then entered the fray, but later withdrew its offer after its board refused to approve the deal. Danone also stepped in briefly, but quickly withdrew, leaving PepsiCo as the surprise winner.

The draw for all of the bidders has been the Gatorade sports drink brand, rather than Quakers' cereals and snacks business. Coca-Cola would have benefited more from the Gatorade brand than PepsiCo, because of its larger distribution network. However, PepsiCo does have other advantages. As well as being able to market Gatorade internationally, PepsiCo is better placed than other bidders to develop Quaker's snacks business. This includes granola bars and rice cakes, which would be added to its Frito-Lay empire, already the world's leading salty snacks business, making it an even stronger player in the convenience store channel.

It is this dominance that members of the FTC are most troubled by. They believe that the merger would give PepsiCo too much of a stranglehold over convenience stores, forcing them to push small competitors out. One such competitor could be Monarch, the small French-owned company to which PepsiCo proposes selling its existing sports drink brand, llsport. That would reduce the sports drink category to just two viable brands - Gatorade and Coca-Cola's Powerade.

Therefore, it seems likely that PepsiCo will need to make further concessions for the bid to be approved, perhaps selling Allsport to a more significant competitor, such as Cadbury-Schweppes. The FTC will make its final ruling within the next few weeks.

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